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General Electric’s Crony Capitalism
General Electric’s Crony Capitalism
Nov. 27, 2013
This is an adaptation of chapter 10 from Hunter Lewis’s book Crony
Capitalism in America :
2008-2012.
During the presidential campaign of 2012, an online
commentator observed that President Obama had not met with his Jobs Council for
six months. How could this be, the commentator asked, when jobs were foremost
on the president’s agenda? The answer was not hard to discover.
The Council was headed by General Electric CEO Jeffrey
Immelt, a noted Obama political backer. Other members included Penny Pritzker,
an heiress who served as Obama’s finance chairwoman in 2008, and Richard
Trumpka, president of the AFL-CIO, one of the largest Obama campaign
contributors. The group was established after the 2010 mid-term election losses
as a device to emphasize the administration’s focus on jobs but, more
importantly, to recognize political allies and campaign donors and prepare for
the 2012 presidential election. This was more or less acknowledged when, after
the president’s re-election, it was disbanded, despite the persistence of high
unemployment.
Why had the president chosen General Electric’s Immelt in
particular as the head of this campaign arm? For one reason, Immelt was
sympathetic to the president’s brand of state-led capitalism. He had gone so
far as to say of China
in a television interview: “The one thing that actually works, state run
communism, may not be your cup of tea, but their government works.”[1]
In addition, employees of General Electric as a group had
been Obama’s ninth largest campaign contributor in 2008, donating $529,855.
These donations in part reflected the company’s close and indeed symbiotic
relationship with government in finance, defense, green energy, television,
technology, and export, and its status as a primary beneficiary of the
administration’s stimulus bill. It was impossible to say where the government
stopped and General Electric began and vice versa.
Even more importantly, the government rescued the company
from what seemed likely to be bankruptcy in 2008-2009. It also let the company
off with an exceptionally mild slap-on-the-wrist fine of $50 million for
cooking its books in the late 1990s and 2000s, when there might instead have
been a large fine and criminal fraud charges.[2] As a further indication
of its exceptionally close ties, the Obama administration inserted language
into the late 2012 fiscal cliff bill that enabled the company to avoid paying
much federal income taxes.[3]
How had General Electric come to be in need of a government
rescue during the Crash of 2008? For most of its history, the company was
considered the bluest of blue chip firms, the last company that anybody would
have expected to be in need of a rescue. Prior to the Crash of 2008, it enjoyed
the highest possible score from the financial rating agencies. There was a
problem, however: the rating was undeserved, perhaps the result of rating agency
myopia, perhaps some behind-closed-door deal.
GE Capital, the company’s finance arm, was the fastest
growing part of the company. By 2007, it contributed almost 40 percent of
revenues and almost half of the profits. It generated these revenues and
profits by using the company’s triple A financial rating to borrow money at
rates even lower than paid by banks for short periods of time and then
relending for longer periods to consumers, including sub-prime borrowers. This
was a classic house of cards. It should have resulted in the company’s
bankruptcy. But when, in September 2008, GE ran out of credit, and the survival
of the company suddenly became doubtful, Immelt knew what to do.
David Stockman, budget director under President Reagan and
professional investor, described what happened:
The nation’s number one crony capitalist — Jeff Immelt of GE
— jumped on the phone to [Treasury] Secretary Paulson and yelled “fire!” Soon
the Fed and FDIC stopped the commercial-paper [short-term corporate debt]
unwind dead in its track by essentially nationalizing the entire market. Even a
cursory look at the data, however, shows that Immelt’s SOS call was a
self-serving crock.
So in the fall of 2008, the US supposedly stood on the edge of
an abyss, with a likely shutdown of the entire financial system, and a
Depression from which we might never emerge. But this was actually just
hyperbole, a way to scare President George W. Bush and members of Congress. No
wonder the former said that “I’ve abandoned free market principles to save the
free market system.” To say something so foolish in public in a television
interview, he must have actually believed it.
Secretary Paulson is also alleged to have said, after
receiving Immelt’s desperate call in September 2008, that he realized the
crisis had now spread from Wall Street to Main Street . But he must have known that
GE was, by that time, the very embodiment of Wall Street, despite being
headquartered nearby in Connecticut .
No doubt “helping Main Street ”
provided good cover for, among other things, saving Paulson’s Goldman Sachs.
By the time the Obama administration arrived, GE spent more
money on lobbying than any other company. Immelt was asked first to join the
President’s Economic Recovery Advisory Board and then, as we have noted, to
chair the Council on Jobs and Competitiveness. When the administration’s
Environmental Protection Agency (EPA) began enforcing new rules to reduce
greenhouse gas emissions, the very first exemption was granted to a GE-powered
facility, the Avenal Power Center
in California .[4] Meanwhile,
GE built a part for General Motors’ electric car, the Chevy Volt, a favorite
project of the administration that had been given hidden subsidies of as much
as $250,000 per vehicle along with buyer tax credits.[5]When that proved
insufficient to get the car sold, the government bought thousands of Volts for
its own fleet.
It was potentially embarrassing to the administration that
GE outsourced so many jobs overseas. For example, when Congress outlawed
old-fashioned incandescent light bulbs, partly at GE’s urging, manufacture of
the new fluorescent bulbs was moved from GE’s light bulb plants in Ohio and Kentucky to China . Also
potentially embarrassing, but little known, was that the fluorescents contained
mercury, an environmental hazard, and that some of the Chinese workers had
reportedly been poisoned by exposure to it.[6] None of this, however, kept
GE from benefiting, directly or indirectly, from what may have been billions in
Stimulus Act grants.
–Hunter Lewis
Note: The views expressed in Daily Articles on Mises.org are
not necessarily those of the Mises Institute.
Hunter Lewis is cofounder of Against Crony Capitalism.
He is the former CEO of Cambridge Associates and the author of eight books,
including two new books,Free Prices Now! and Crony Capitalism in America :
2008-2012. He has served on boards and committees of 15 not-for-profit
organizations, including environmental, teaching, research, and cultural
organizations, as well as the World Bank. See Hunter Lewis’s article
archives.
Notes
[1] Charlie Rose CBS interview, http://www.freebeacon (December
10, 2012).
[2] Grant’s Interest Rate Observer (October 5,
2012): 1.
[3] Carney, http://www.washingtonexaminer.com (January
2, 2013).
[4] http://www.washingtonexaminer.com (February 2,
2011).
[5] http://www.againstcronycapitalism.org (February
21, 2012).
[6] Times of London :
also http://www.washingtonexaminer.com (May 17, 2011).
The Ludwig von Mises Institute was founded in 1982 as
the research and educational center of classical liberalism, libertarian
political theory, and the Austrian
School
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